India Microfinance

Microfinance and Mobile Banking

CGAP has released a detailed report on the evolution and challenges facing the marriage of Microfinance with Mobile banking. The paper examines the various models currently prevalent among microfinance institutions,their evolution and the future of mobile banking in the microfinance sector. The note also includes examples of various successful mobile banking networks in Africa and their different models.

Download in Pdf – Microfinance and Mobile Banking Note at the link below

In the past decade or so, many microfinance institutions (MFIs) have experimented with alternative delivery channels to reduce costs, facilitate greater outreach to hard-to-reach areas, and increase customer convenience. In theory, mobile phones could be used to reach many more customers at a lower cost than any existing delivery channel. Yet despite this potential, in the vast majority of countries there is not yet an existing mobile banking service that MFIs can leverage. M-banking to date has largely been driven by MNOs and, to a lesser extent, by some large banks. MFIs have by and large not played a significant role in the implementation of mobile banking services.

There are fundamental reasons why MFIs are generally not positioned to get into mobile banking early on. Most mobile banking deployments provide transfers, a service that very few MFIs provide. Indeed, MFIs and successful mobile banking businesses occupy different worlds today. The MFI world is focused on credit and maybe some savings, while the mobile banking world is focused on transfers and payments.

The MFI world largely uses unsophisticated backend systems while the mobile banking world uses some of the most sophisticated backend systems we know today (even better than some banks). The MFI world focuses on creating low-cost, human-driven infrastructure, while the mobile banking world is tied into and uses payment systems infrastructure. It is not surprising then that these two worlds have not yet aligned.

This Focus Note aims to do two things:

(i) explore the various roles that MFIs can play in mobile banking and

(ii) explore the potential benefits MFIs and their customers expect to gain from pursuing mobile banking.